How to Choose Between Chapter 7 and Chapter 13 Bankruptcy in Colorado
When faced with overwhelming debt, many individuals consider bankruptcy as a viable solution for financial relief. In Colorado, the two most common types of personal bankruptcy are Chapter 7 and Chapter 13. Understanding the differences between these two options is crucial for making an informed decision regarding which path to take. Below is a guide on how to choose between Chapter 7 and Chapter 13 bankruptcy in Colorado.
Understanding Chapter 7 Bankruptcy
Chapter 7 bankruptcy is often referred to as “liquidation bankruptcy.” This type allows individuals to discharge most of their unsecured debts, such as credit card bills and medical expenses, without the obligation to repay them. In Colorado, the process generally takes about three to six months.
Key points to consider about Chapter 7 bankruptcy include:
- Eligibility: To qualify, individuals must pass a means test that assesses their income relative to the state median.
- Asset Liquidation: While many personal assets are exempt, non-exempt assets can be sold by the bankruptcy trustee to pay creditors.
- Dischargeable Debts: Most unsecured debts can be discharged; however, certain debts like student loans and child support cannot be eliminated.
Understanding Chapter 13 Bankruptcy
Chapter 13 bankruptcy, often referred to as “reorganization bankruptcy,” is designed for individuals with a regular income who can pay back some of their debts over time. This option allows you to keep your assets while working out a repayment plan, typically lasting three to five years.
Consider the following when evaluating Chapter 13 bankruptcy:
- Eligibility: There are debt limits for Chapter 13, which means your unsecured and secured debts must be below a certain threshold.
- Repayment Plan: Individuals propose a repayment plan to the court, detailing how they will pay back debts over the established period.
- Retention of Assets: Unlike Chapter 7, Chapter 13 allows you to retain your property, making this route preferable for those at risk of losing their homes or vehicles.
Factors to Consider When Choosing
When deciding between Chapter 7 and Chapter 13 bankruptcy in Colorado, several factors should influence your choice:
- Income Level: If your income exceeds the state median and you do not qualify for Chapter 7, Chapter 13 may be your only option.
- Type of Debt: Consider the nature of your debts. If you have significant non-secured debts, Chapter 7 may be beneficial. For those with secured debts and the ability to repay, Chapter 13 might be the better choice.
- Property Ownership: If you own valuable assets you want to protect, Chapter 13 allows you to keep them, which may weigh heavily in your decision.
- Impact on Credit: Both bankruptcy types impact your credit score, but they differ in duration; a Chapter 7 stays on your credit report for 10 years, while Chapter 13 remains for 7 years.
The Role of a Bankruptcy Attorney
Choosing the right type of bankruptcy can be complex, and having a knowledgeable bankruptcy attorney in Colorado can make a significant difference. They can help you:
- Evaluate your financial situation and identify the best option.
- Navigate the legal requirements and paperwork involved.
- Represent you during hearings and negotiations with creditors.
Conclusion
In conclusion, whether to file for Chapter 7 or Chapter 13 bankruptcy in Colorado depends on your unique financial situation. Taking the time to weigh the pros and cons, along with consulting a qualified bankruptcy attorney, will ensure that you make the most informed decision for your financial future.